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The slowdown in GDP growth cannot be attributed only to high policy rates but also to a host of other factors, said Dr K. C. Chakrabarty, Deputy Governor, Reserve Bank of India.
“I don't think that our interest rates are that high, or the policy rates are so high that they should significantly affect growth. Growth is affected due to a variety of reasons and this (policy rate) is just one of them,” he said on the sidelines of the 29th Skoch summit.
The Deputy Governor felt that the impact of policy rate hike on growth was being overplayed.
Majority of the people are borrowing at 13-14 per cent to do business and cutting interest rate by one or two percentage points is not going to spur growth if the investment climate is not conducive, he said.
On cutting rates
Dr Chakrabarty said the central bank will definitely cut policy rates if inflation eases. The RBI's next policy review is scheduled on June 18.
The Deputy Governor, whose term expires on June 14, said the main concern for the Reserve Bank is to check inflation.
India's inflation based on the wholesale price index (WPI) and consumer price index (CPI) for April 2012 were at 7.23 per cent and 10.4 per cent, respectively.
The country's economy grew 5.3 per cent in the fourth-quarter, the lowest in nine years, and at 6.5 per cent in the year ended March 2012.
The current crisis has been fuelled by the financial sector, Dr Chakrabarty said. Historically, improving productivity and efficiency have been critical to get out of financial crises. In the face of the global financial crisis, he suggested that each individual reform by enhancing productivity and efficiency so that growth momentum is created.
On the theme of financial inclusion, Dr Chakrabarty said that though a lot has been done, a lot more ground needs to be covered.
About 54 million no-frill accounts have been opened in the last two years taking the total to 100 million. He told banks that they were not taking enough strides in the realm of financial inclusion. “If you do not act, then you will be forced to act,” he cautioned bankers.
He said banks have not been able to reduce the transaction cost, despite the use of Information and Communication Technology (ICT).
Banks are reluctant to set up branches in rural areas despite the central bank relaxing the know-your-customer (KYC) norms for small accounts and giving banks a free hand to set up branches there.
> satyanarayan.iyer@thehindu.co.in
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